Why Dealers Should Hop on the Subscription Bandwagon - AutoSuccessOnline

Why Dealers Should Hop on the Subscription Bandwagon

Dealers will need to address convenience issues, as well as better identify preventive maintenance issues during scheduled idle time.

Lately, there has been a lot of talk in the industry regarding automotive subscriptions as a new and innovative ownership model. The fact is, the subscription model has been with us for a long time. However, most current models merely fill the gap between short-term subscription (daily rental) and long-term subscriptions (leasing).

This increased interest in auto subscriptions seems to be spurred by autonomous vehicles. However, while autonomous vehicles can reduce the inconvenience of having to return the Enterprise driver to the lot, the technology does not change the fundamental economics. Mass adoption of medium-term subscriptions must address the steep early depreciation curve and high remarketing costs, which require high fleet utilization and rapid, frictionless vehicle redeployment from customer to customer.

There is also a hidden assumption that subscriptions will be the demise of the franchise dealer model. Some prophesize dealers will be replaced by fleet management companies who buy direct from manufacturers. Well, not only do these arguments underestimate franchise law resilience, but they also fail to appreciate certain natural dealer group advantages in executing a subscription model.

Let’s look at those advantages.

  1. Dealers are established. Dealers already have the local footprint to allow consumers to view and test-drive vehicles. While perhaps less important, because one doesn’t need to live with mistakes as long, many consumers will still want to try before they buy.
  2. Service departments. Dealers are better equipped to service vehicles throughout the vehicles’ useful fleet lifespan.
  3. Flexible utilization. The most important reason why auto subscriptions can work for dealers is because they have several mechanisms to manage utilization more seamlessly by shifting vehicles from fleet, to service loaners, to used vehicle inventory, in order to maximize asset value at any given time.

Mike Jackson, chairman, CEO and president of AutoNation, Inc. described the underpinnings of this strategy in an Automotive News article. AutoNation is accumulating assets to maximize customer and asset values over time. Large dealer groups can offer consumers any vehicle that meets their needs, new and used, then service those vehicles according to OEM standards and efficiently transition vehicles to other owners, or outside the ecosystem when needed.

This economic model is compelling, and it will be difficult for pure fleet management companies to replicate. Smaller dealers do not necessarily go away, but may need to partner with larger fleet operators to service and sell pre-owned vehicles no longer meeting the fleet standard, or for help adjusting fleet mix and size.

Shifting from a traditional model to supporting large consumer fleet operations involves many significant changes, including service operations. Effectively, fixed operation changes from a profit center to a cost center, with new demands. Subscription rates will likely include depreciation, capital and maintenance charges, so essentially service revenues get “locked in.”

Dealers will still need to reach consumers and invite them to service, but consumers may be less committed to regular service because they do not own the asset. Dealers will need to address convenience issues, as well as better identify preventive maintenance issues during scheduled idle time.

In this scenario, service operation efficiency becomes a key differentiator, as maintenance cost per mile becomes more explicit. Dealers who have relied on high-margin, dealer-recommended items to drive service profits will need to shift their focus to increasing throughput, maximizing labor effectiveness and reducing rework. Industrial engineering will trump salesmanship.

How pervasive automotive subscriptions become will depend greatly on how well innovators address the fundamental economic barriers. However new ownership models evolve, as a dealer you will have the opportunity to benefit from new subscription models in the same way you have with leasing. You just need to think through the implications on their operations and evolve with the market.

You May Also Like

Selecting the Ideal Car Lift for EV Servicing

When choosing the right car lift for servicing electric vehicles there are several key factors to consider.

Key Factors in Selecting the Ideal Car Lift for Electric Vehicle Servicing- Coats

The rapid surge in electric vehicles (EVs) has reshaped the automotive industry, necessitating specialized equipment for their servicing needs. One crucial piece of equipment is the car lift, which is pivotal in safely and efficiently maintaining EVs. When choosing the right car lift for servicing electric vehicles there are several key factors to consider. In this comprehensive guide, we’ll dive into the key factors you should consider when choosing the ideal car lift for your facility.

Mayhew Introduces 14-Piece Micro Hand Tool Set

This new set is a compilation of all the current micro line products, including pry bars, picks, hooks and screwdrivers.

This new set is a compilation of all the current micro line products from Mayhew; including pry bars, picks, hooks and screwdrivers.
BendPak Offers Space-Saving Full-Rise Scissor Lift

The new BendPak SP-7XE Series of full-rise scissor lifts provides the performance and undercarriage access of traditional two-post lifts in a more compact, space-saving package.

The new BendPak SP-7XE Series of full-rise scissor lifts provides the performance and undercarriage access of traditional two-post lifts in a more compact, space-saving package. Floor- and flush-mount models of this frame-engaging lift are available.
Hunter Engineering Wins Optimizely Award

Hunter employed several Optimizely products to help provide exceptional customer experiences. With the assistance of Optimizely CMS, Hunter’s corporate website Hunter.com saw a 70% increase in monthly average pageviews.

Hunter Engineering Wins Optimizely Award
Collision Careers Launches Digital Campaign to Attract Technicians

Aimed at attracting technicians to the field, the videos highlight various professional roles in collision repair including structural technicians, estimators and electric diagnostics technicians.

collision careers tech shortage

Other Posts

ASE, Dealer Associations Partner to Increase Awareness of Automotive Careers

ASE is partnering with dealer associations to conduct student competitions designed to increase awareness of automotive career opportunities.

young automotive technicians and mechanics
Access Tight Spaces with Mini Angle Die Grinder

The low-weight, ultra-compact design provides added control and maneuverability.

Florida Pneumatic Manufacturing Corporation recently released the AIRCAT 6250 1⁄4” Mini Angle Die Grinder.
Used Car Sourcing and Predictable Appraisal Accuracy

Trade-ins remain essential, so when their owners walk through the door, give them the fairest offer you can — and be sure the spread you need isn’t diluted by appraisal oversights.

Used Car Sourcing and Predictable Appraisal Accuracy
Unlocking Your Dealership’s Hidden Revenue: The Power of Warranty Reimbursements

Partnering with a qualified vendor to ensure you receive what you’re legally owed is more than just advantageous — it’s a necessity.

Unlocking Your Dealership's Hidden Revenue: The Power of Warranty Reimbursements